Empire Petroleum Corporation — Form 10-Q Summary
Business Context and Reporting Period
This unaudited Form 10-Q covers the three and nine months ended September 30, 2016, filed November 14, 2016. Empire’s primary business is the exploration and development of oil and gas interests. The company had no employees, owned no oil and gas properties or equipment, and reported no petroleum sales during either comparable period.
Financial Condition and Key Metrics
| Metric | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Petroleum sales | $0 | $0 | $0 | $0 |
| General and administrative expense | $18,859 | $40,220 | $161,901 | $137,656 |
| Operating loss | $(18,859) | $(40,220) | $(161,901) | $(137,656) |
| Net loss | $(18,859) | $(40,215) | $(161,901) | $(137,637) |
| Net loss per share | $(0.00) | $(0.00) | $(0.02) | $(0.02) |
- Cash was $789 at September 30, 2016, compared with $18,105 at December 31, 2015.
- Total assets were $182,264, including $181,475 of lease options. Total stockholders’ equity was $132,664.
- Accounts payable and accrued liabilities increased to $49,600 from $8,175 at December 31, 2015.
- The company reported no debt in the balance sheet.
- Cash used in operating activities was $17,316 for the first nine months of 2016, compared with $99,115 in the prior-year period. There was no financing cash inflow in 2016, compared with $135,000 from stock sales in 2015.
- Cash declined by $17,316 during the first nine months of 2016, from $18,105 to $789.
- The effective tax rate was 0%; net operating loss tax benefits were fully offset by a valuation allowance.
Material Changes Versus the Prior Comparable Period
- Third-quarter general and administrative expense decreased by $21,361, or approximately 53%, primarily because of lower travel, legal, and accounting expenses.
- Third-quarter net loss improved by approximately $21,357.
- Nine-month general and administrative expense increased by $24,245, or approximately 18%, primarily because of stock options issued in 2016.
- Nine-month net loss increased by approximately $24,264.
- On June 1, 2016, the company issued immediately vested options to purchase 1,150,000 common shares for services. The company recorded $65,660 of expense related to these options.
- Options and warrants outstanding totaled 2,946,250 at September 30, 2016, compared with 1,796,250 at September 30, 2015. They were anti-dilutive because the company reported losses and applicable strike prices exceeded the market price.
Guidance, Outlook, Risks, and Unusual Items
Management stated that the company requires additional financing to sustain operations, evaluate leases, and pursue development activities. It is considering equity financing, debt financing, merger opportunities, and potential acquisitions. No formal financial guidance was provided.
- The company disclosed substantial doubt related to its ability to continue as a going concern, noting recurring losses and dependence on future profitable operations or additional debt or equity financing.
- The company is seeking partners to explore and develop oil and gas interests and expects potential acquisitions and development to be financed through equity or debt transactions.
- Lease options covered approximately 150,000 gross leasable acres in South Dakota and approximately 10,000 gross leasable acres in South Dakota and North Dakota. Management stated that, absent sufficient funding, the options would be written off upon expiration.
- The company had begun geological and geophysical studies but had not generated production or revenue. The filing does not provide a clear value for any recoverable oil and gas reserves.
- Forward-looking risks include inability to secure financing, competition, market and technology changes, environmental legislation, and failure to identify economically viable drilling prospects.
- No legal proceedings, defaults upon senior securities, or unregistered equity sales were reported for the period.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2016.
Important Facts for Investors to Verify
- Whether the company obtained financing after September 30, 2016, given its $789 cash balance and going-concern disclosure.
- The status, expiration, renewal, or impairment of the South Dakota and North Dakota lease options.
- Whether the company generated any subsequent oil and gas production, revenue, reserves, or drilling commitments.
- The potential dilution from 2,946,250 outstanding options and warrants, including the 1,150,000 options issued in 2016.
- Whether accounts payable and accrued liabilities were paid, settled, or converted into equity after quarter-end.
- Any subsequent merger, acquisition, joint venture, or equity or debt financing transactions.